Asset Classes: Stocks, Bonds & Cash
Your asset mix — not which fund you pick — decides most of your investment outcome. Decades of research attribute the large majority of a portfolio's return variability to asset allocation. Get the mix right and the rest is detail.
Equities (stocks) — the growth engine
Ownership stakes in businesses. Highest long-run returns (Canadian and global equities have historically averaged roughly 6–9% annually over long periods) and the highest volatility — drops of 30–50% happen and must be sat through, not sold through.
Fixed income (bonds) — the shock absorber
Loans to governments and corporations that pay interest. Lower returns, lower volatility, and they usually (not always — see 2022) zig when stocks zag. The classic role: dampen the ride so you stay invested.
Cash & equivalents — the stabilizer
T-bills, high-interest savings, money market funds. Near-zero risk of loss, near-certain loss to inflation over time. For emergency funds and short-term goals, not wealth-building.
The classic mixes
| Profile | Stocks / Bonds | Typical use |
|---|---|---|
| Conservative | 30 / 70 | Short horizon, low sleep tolerance for losses |
| Balanced | 60 / 40 | The default for a reason |
| Growth | 80 / 20 | Long horizon, strong stomach |
| All-equity | 100 / 0 | Decades to go, proven ability to not panic |
Practice finding your mix risk-free with a $100,000 simulated portfolio.